Gootube Gets Its Due

The beginning of the end for Gootube.

It was bound to happen. Someone finally stepped up and sued Google(NASDAQ:GOOG) over the rampant copyright infringement phenomenon that is YouTube.

For months, none of the media conglomerates seemed to have the guts to take on America's favorite megacap. The likes of Warner Music Group(NYSE:WMG), GE's (NYSE:GE) media arm NBC, and CBS(NYSE:CBS) began negotiating deals that would give Gootube permission to profit off content created by others, and uploaded by third parties who don't really have the right to do so.

The issue is pretty simple. Viacom says -- and I've long agreed -- that Gootube is trying to profit, illegally, from the work and investments made by others: "Their business model, which is based on building traffic and selling advertising off of unlicensed content, is clearly illegal and is in obvious conflict with copyright laws."

Descriptions of Gootube's negotiating tactics -- where greater scrutiny and filtering of infringing uploads is promised only after content companies sign deals -- might just sound like blackmail to some people. And Viacom, quite clearly, isn't giving in.

I think this is the beginning of the end for Gootube. This lawsuit strikes at the heart of Gootube's underpants-gnome business model, which up until know has been:

You'll notice there's not much of a step 3. I don't think Gootube even knows whether or how it could make money off that content. The success of YouTube (compared to pay-per-view models like Google Video) is good proof that users don't really want to pay for this content, nor are they interested in preroll ads. Is anyone clicking on sidebar ads? I doubt it.

But even assuming Google could have come up with a workable step 3, Viacom's stance has already deprived Gootube of a lot of step 1. And if this lawsuit swings Viacom's way, Gootube could be saddled with huge filtering responsibilities that would be enormously -- if not prohibitively -- expensive.

The reality is this: Anyone can build a video-hosting site. Plenty of companies are doing it, including the networks themselves, which are offering free services with much better quality and full-length episodes. Other clip-hosting sites have, unlike Gootube, proved more willing to share the spoils of their success with the content creators.

Once other media companies realize that giving in to Gootube means they're giving away the farm to a company that isn't reciprocating with the best terms available, I expect to see the deals stop, the lawsuits multiply, and Gootube to unravel for good.

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At the time of publication, Seth Jayson had no positions in any company mentioned. See his latest blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.